Reality check

Workers note pension-plan cuts, but few ramp up savings in response

SAN FRANCISCO (MarketWatch) -- Workers now understand their retirement outlook is more dire as employers increasingly move away from traditional pensions, but a good portion of those workers aren't doing much to improve their retirement security, according to the 17th annual Retirement Confidence Survey by the Employee Benefit Research Institute.

More people seem to be aware that the traditional pension is on tenuous ground, with 45% of workers saying they're less confident about receiving money from a traditional pension, according to the survey of 1,252 U.S. adults 25 and older.

Seventeen percent of workers experienced cuts to their pensions firsthand within the past two years, according to the survey produced by the Employee Benefit Research Institute, a nonprofit research firm, and Mathew Greenwald & Associates, a survey-research firm. The survey has a margin of error of +/- 3 percentage points.

Response to reduced benefits

But of the 17% who experienced retirement-plan cuts, 39% said they've not made any changes as a result of the cutbacks.

"I looked at that and said, 'This has to be an age influence'" -- that is, what younger workers are doing -- said Jack VanDerhei, a Temple University professor, EBRI fellow, and co-author of the survey. See the full report on the EBRI Web site.

"Surprisingly, it's not. You're virtually as likely to do nothing if you're 55 years or older as if you're younger," he said. That's worrisome, he said, because "if you lose your defined-benefit accruals when you're old, you have a huge financial setback. And they're basically not doing anything."

The good news is that 32% of those who experienced cutbacks are putting aside more in savings as a result. Another 12% said they're trying to stay healthy. Five percent are planning to work in retirement as a result of their employer's actions, 5% say they'll make greater use of financial planning or investment information, 4% say they'll seek advice from a financial professional and 4% say they'll postpone retirement.

Better outcome next year?

Eventually, changes in 401(k) plans will lead to a better savings outlook, VanDerhei said. The growing trend among employers to automatically enroll workers in 401(k) plans and then automatically increase their contribution amounts each year "will save a huge percentage of defined-contribution plan participants who, left to their own devices, have shown repeatedly that they're just not going to contribute or they're not going to contribute enough," he said. See related story on trends in 401(k) plans.

Over the next year, "you should certainly see the participation rates going up and the percentage of people who have saved going up," he said. However, "I don't think, after a year's worth of this, you're going to find a lot of increase in accumulated savings at that point."

Pension fantasy land

The worrisome fact remains that plenty of workers are still counting on a pension that's unlikely to materialize.

Only 41% of workers said they or their spouse have a traditional pension, but 62% of workers said they expect income from such a plan in retirement -- an unrealistic assumption as employers generally aren't adding new members to their pension-plan rolls.

Similarly wishful thinking is evident when it comes to health coverage in retirement.

Despite employers' penchant for cutting back on retiree health benefits, 41% of workers surveyed expect employer-provided health insurance in retirement. That's about the same percentage as the 43% of retirees who report having such coverage currently.

Eighteen percent of the workers said they expect the employer to pay the full cost of such coverage, while just 14% of the current retirees said that's the case (10% of the retirees said the retiree pays and 17% said the costs are shared).

Just 53% of the workers said they won't have employer health coverage when they retire, compared with 57% of the retirees who said they don't have it currently.

Some piggy banks not so full

The total of workers' savings and investments varies widely by age. Overall, 49% of workers have less than $25,000 saved, not including the value of their primary residence or defined-benefit pension benefits.

Twenty-three percent of workers have between $25,000 and $99,999 saved, while 29% have more than $100,000 saved.

Among those closest to retirement -- workers age 55 and older -- 32% have less than $25,000 saved, while 48% have more than $100,000 saved.

Among those 35 to 44, 52% have less than $25,000 saved and 24% have more than $100,000 saved. Among those 45 to 55, 35% have less than $25,000 saved and 40% have more than $100,000 saved.

Still, 72% of workers are either very confident or somewhat confident that they'll have enough money for a comfortable retirement, about the same portion as said that a year ago.

Work longer?

While 24% of workers overall say they'll retire at age 66 or later -- presumably to give themselves time to ramp up savings -- some may be hindered in their plans.

About 40% of retirees say they had to leave the work force earlier than they planned -- due to downsizing, obsolete skills, health problems, a disability, or to care for a family member -- a figure that has held fairly steady for about 15 years.

Still, the portion of retirees who say they have worked in retirement is higher this year at 37%, compared with 27% a year ago. In general, that figure has hovered around 25% every year since 1998, though it hit 32% in 2004.

That rise could be a response to a lack of savings, VanDerhei said, or it could be related to health-care costs.

"When retirees find out what their deductibles and cost-sharing provisions are under Medicare, sometimes they long for active health insurance coverage again," he said.

Andrea
Coombes

Andrea Coombes is a personal-finance writer and editor in San Francisco. She's on Twitter @andreacoombes.

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